INVESTMENT AGREEMENT
INVESTMENT AGREEMENT dated July 30, 1998 ("AGREEMENT") by and between PIONEER
VENTURES ASSOCIATES LIMITED PARTNERSHIP, a Connecticut limited partnership with
offices at 000 Xxx Xxxx Xxxx, Xxxxxxx, Xxxxxxxxxxx 00000 ("PIONEER VENTURES"),
AND NEUROCORP, LTD., a Nevada corporation with offices at 000 Xxxxx Xxxxxx Xxxx,
Xxxxxxxxx, Xxx Xxxx 00000 (the "COMPANY").
WHEREAS, the Company desires to obtain funds to finance its operations
and products, market certain development efforts, develop memory centers and
engage in clinical research studies pertaining to the human brain and memory
function.
WHEREAS, Pioneer Ventures desires to provide funds to the Company for
such purposes on the terms and conditions set forth below.
NOW THEREFORE, in consideration of the investment to be made, mutual
benefits to be derived hereby and the representations, warranties, covenants and
agreements herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Company and Pioneer
Ventures agree as follows:
ARTICLE I. SALE AND TRANSFER OF STOCK
1.1 SERIES C SENIOR CONVERTIBLE PREFERRED STOCK. (a) Upon the terms and
subject to the conditions hereinafter set forth, at the various closings (as
hereinafter defined and set forth), the Company shall issue, sell, transfer
and deliver to Pioneer Ventures an aggregate of one million five hundred
thousand (*1,500,000*) shares of the Company's Series C Senior Convertible
Preferred Stock, $.001 par value (the "PREFERRED STOCK") at the Purchase
Price set forth in Section 1.2 hereof; the Preferred Stock shall have the
terms and be issued subject to the conditions as set forth herein and in the
Series C Certificate of Designation to be filed and recorded with the
Secretary of State of the State of Nevada upon the occurrence of the First
Closing as set forth below. (b) At the first closing ("FIRST CLOSING") on
July __ 1998, the Company shall issue, sell, transfer and deliver to Pioneer
Ventures three hundred thirty-three thousand three hundred thirty-three
(*333,333*) shares of Preferred Stock upon payment of the Purchase Price
therefor and satisfaction of the conditions contemplated herein. (c) At the
second closing ("SECOND CLOSING") which shall not occur prior to
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the hire and commencement of full time service of a chief executive officer
which hiring shall be made by the reconstituted board of directors and shall be
approved in writing by Pioneer Ventures (the "CEO-TO-BE-HIRED"), as well as
completion of the Milestones for such closing set forth in Section 1.13 hereof,
the Company shall issue, sell, transfer and deliver to Pioneer Ventures three
hundred thirty-three thousand three hundred thirty-four (*333,334*) shares upon
payment of the Purchase Price therefor and satisfaction of the conditions
contemplated herein. (d) At one or more subsequent closings ("SUBSEQUENT
CLOSINGS"), the Company shall issue, sell, transfer and deliver to Pioneer
Ventures an additional eight hundred thirty-three thousand three hundred
thirty-three (*833,333*) shares of Preferred Stock upon payment of the Purchase
Price therefor and satisfaction of the conditions contemplated herein and upon
the conditions to be determined in accordance herewith as well as completion of
the Milestones for such closing set forth in Section 1.13 hereof. (e) At the
First Closing, the Company shall reserve one million one hundred sixty-six
thousand six hundred sixty-six (*1,166,666*) shares to be delivered in whole or
in part at the Second Closing and at the Subsequent Closings. (f) Upon sale and
issuance to Pioneer Ventures each share of Preferred Stock shall be free and
clear of all manner of liens, pledges, encumbrances, charges and claims thereon.
Certificates evidencing the Preferred Stock shall be delivered by the Company to
Pioneer Ventures at the Closing. Such certificates shall also be accompanied by
evidence satisfactory to Pioneer Ventures of the Company's payment of any
applicable transfer and franchise taxes. Said stock will not be issued in a
transaction registered with the U.S. Securities and Exchange Commission
("COMMISSION") and shall, therefore, be restricted from resale to the public.
The Preferred Stock Certificate shall be in the form annexed hereto as EXHIBIT
1.1.
1.2 PURCHASE PRICE AND PAYMENT AND TIMING. The Purchase Price for the
Preferred Stock to be sold to Pioneer Ventures pursuant to this Investment
Agreement shall be three ($3.00) dollars per share. Upon the occurrence and
consummation of the First Closing, and in consideration therefor, Pioneer
Ventures shall pay the Company at that Closing, in cash, by wire transfer or
by check, the sum of one million ($1,000,000.00) dollars as full
consideration for its subscription therefor; (b) upon the occurrence and
consummation of the Second Closing, if it is so consummated, and in
consideration therefor, Pioneer Ventures shall pay the Company at that
Closing, in cash, by
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wire transfer or by check, the sum of one million ($1,000,000.00)
dollars as full consideration for its subscription therefor; and (c) upon the
occurrence and consummation of all of the Subsequent Closings, if it is so
consummated, and in consideration therefor, Pioneer Ventures shall pay the
Company at that Closing, in cash, by wire transfer or by check, the sum of two
million five hundred thousand ($2,500,000.00) dollars as full consideration for
its subscription therefor. See Section 1.13 and Article VII for the requirements
of each closing.
1.3 CONVERTIBLE INTO COMMON. Each share of Preferred Stock shall be
convertible at the option of the holder into one (1) share of the Common
Stock of the Company, $.01 par value (the "COMMON STOCK") at any time and
from time-to-time. The number of shares of Common Stock issuable upon
conversion of the Preferred Stock will be subject to adjustment in certain
circumstances upon any recapitalizations, including but not limited to stock
splits, readjustments or reclassifications, to protect against dilution, as
set forth in more detail in Section 1.7 hereof.
1.4 CUMULATIVE DIVIDEND. Holders of the Preferred Stock shall also be
entitled to an eight (8%) percent cumulative quarterly cash dividend, payable
quarterly in arrears calculated on a 360-day year consisting of twelve 30-day
months, and payable immediately out of the assets of the Company legally
available therefor. The Preferred Stock dividend shall be paid before any
dividend shall be set apart or paid on the Common Stock for such quarter. If
less than the full preferential dividend is paid (as a partial payment or if
no dividend is paid) to the holders of the Preferred Stock in any quarter,
the unpaid amount shall accumulate and be added to the preferential dividends
due in any subsequent quarter, in which case such unpaid amounts shall be
paid first and the newly accrued dividends of the then current quarter, to
the extent are unpaid, shall accumulate until paid. No dividends shall be
paid to the holders of the Common Stock if any dividends are unpaid on the
Preferred Stock. Upon Pioneer Ventures' consent the dividends may be paid, in
whole or in part, by the issuance of additional shares of Series C Preferred
Stock upon the same terms as cash dividends payable hereunder except at an
interest rate of 13%. In addition, if there is a Dividend Arrearage an
Additional Dividend shall be calculated using, as one factor, the Liquidation
Preference.
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1.5 LIQUIDATION. In cases of the voluntary or involuntary liquidation,
dissolution or winding up of the Company, holders of shares of the Preferred
Stock shall be entitled to receive a liquidation preference equal to ten (10)
dollars per share (the "LIQUIDATION PREFERENCE") and subject to the adjustments
as provided in this section, plus an amount equal to any accrued and unpaid
dividends to the payment date, before any payment or distribution is made to the
holders of Common Stock. Neither a consolidation or merger of the Company with
another corporation nor a sale or transfer of all or part of the Company's
assets for cash, securities or other property will be considered a liquidation,
dissolution or winding up of the Company, provided that all accrued but unpaid
dividends on the Preferred Stock will be due and paid upon the occurrence of
such event or upon the public offering of the Company's securities.
1.6 RESERVATION OF SHARES; SHARES TO BE FULLY PAID. As of the date hereof,
the Company has reserved, free from preemptive rights, out of its authorized
but unissued shares of Common Stock, or out of shares of Common Stock held in
its treasury, sufficient shares to provide for the conversion of the
Preferred Stock. Before taking any action which would cause an adjustment
reducing the conversion value below the then par value, if any, of the shares
of Common Stock issuable upon conversion of the Preferred Stock, the Company
shall promptly take all corporate action which may be necessary in order that
the Company may validly and legally issue shares of such Common Stock at such
adjusted conversion price. The Company covenants that all shares of Common
Stock which may be issued upon conversion of the Preferred Stock will upon
issue be fully paid and nonassessable.
1.7 ANTI-DILUTION RIGHTS. In order to allow the holders of the Preferred
Stock to maintain their PRO RATA share of the Company's capital stock on a
fully diluted basis, except as set forth in the next sentence of this
Section 1.7 and solely with respect to this Section 1.7, the holders of the
Preferred Stock shall be entitled, as of right, to purchase or subscribe for
PRO RATA any stock of the Company to be issued by reason of an increase of
the authorized stock of the Company or the creation a new class of
securities, and the issuance of such securities (collectively referred to as
"NEW SECURITIES"). The anti-dilution rights set forth hereinabove shall not
be applicable to (i) currently authorized but
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unissued securities of the Company, (ii) securities issued to employees,
consultants or directors of the Company pursuant to any stock option plan or
stock purchase or stock bonus arrangement approved by the Board of Directors, up
to a maximum amount as provided in Section 6.5, (iii) securities offered to the
public pursuant to a registration statement filed pursuant to the Securities
Act, and (iv) securities issued pursuant to an acquisition of another
corporation by the Company by merger, purchase of all or substantially all of
the assets or other reorganization whereby the Company owns not less than
fifty-one (51%) percent of the voting stock of such corporation.
(a) NOTICE AND EXERCISE OF ANTI-DILUTION RIGHTS. In the event the Company
proposes to issue New Securities, it shall give the holders of the
Preferred Stock written notice of its intention, describing the type of New
Securities, the price and general terms upon which the Company proposes to
issue the same. In exercising such anti-dilutive rights, the holders of the
Preferred Stock shall be given thirty (30) days from the receipt of such
notice to agree to purchase or subscribe for such New Securities, at the
same price and on the same terms, in the proportion that the number of
shares of Common Stock that underlies the Preferred Stock, if converted,
bears to the sum of (1) the total number of shares of Common Stock issued
and outstanding and (2) the number of such underlying shares.
(b) OVER-ALLOTMENT. The holders of the Preferred Stock shall have the
right of over-allotment such that, in the event other holders having anti-
dilutive rights fail to exercise such right to purchase all of the New
Securities, the remaining holders of the Preferred Stock may purchase the
non-purchasing holders' New Securities not so purchased, on a PRO RATA
basis, based upon the respective fully diluted Common Stock ownership in
the Company of each such remaining holder of Preferred Stock, within ten
(10) days from the date the non-purchasing holders fail to exercise their
rights hereunder. The holders of the Preferred Stock shall be required to
commit in writing, at the time they exercise their anti-dilution rights,
the maximum amount of over-allotment shares they agree to purchase, if any
become available.
1.8 PERCENTAGE OF FULLY DILUTED SHARES. The shares of Preferred Stock to be
delivered
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by the Company to Pioneer Ventures as set forth above shall, if converted,
constitute two and seventy-one thousandths (2.71%) percent of the fully diluted
issued and outstanding Common Stock of the Company as of the Closing Date, as
hereinafter defined. The term "FULLY DILUTED" as used in this Agreement shall
mean the number of shares of the Common Stock of the Company to be outstanding
upon the exercise or conversion of all warrants, options or other securities
convertible into the Common Stock of the Company outstanding as of the Closing
Date, including the Preferred Stock to be issued on the Closing Date.
1.9 VOTING RIGHTS AND PROHIBITIVE COVENANTS. The Preferred Stock shall have
full voting rights and shall be voted together with the Common Stock as one
class, each share to entitle the holder thereof to the number of votes equal
to the number of shares of Common Stock into which it is convertible on the
appropriate record date. So long as any of the Preferred Stock is
outstanding, the Company shall not without the affirmative vote or consent of
the holders of a majority of all outstanding shares of the Preferred Stock
voting separately as a class (i) amend, alter or repeal any provision of the
Certificate of Incorporation or the bylaws of the Company so as to adversely
affect the relative rights, preferences, qualifications, limitations or
restrictions of the Preferred Stock, (ii) authorize or issue any additional
equity securities of the Company or any subsidiaries, however such consent
shall not be unreasonably withheld, (iii) approve any merger, consolidation,
compulsory share exchange or sale of assets to which the Company is a party,
however such consent shall not be unreasonably withheld, (iv) repurchase or
redeem any equity securities or pay dividends or other distributions on any
equity securities, except as provided for the Preferred Stock, (v) liquidate,
dissolve, recapitalize or reorganize the Company, (vi) guarantee
indebtedness, directly or indirectly, of other persons, (vii) effect any
fundamental changes in the nature of the Company's business, including but
not limited to acquiring or investing in another business entity, and (viii)
approve the sale or transfer of intangible or intellectual property, other
than the issuance of licenses in the ordinary course of business.
1.10 VOTING AGREEMENTS CONCERNING DIRECTORS.
(a) GENERALLY. Effective immediately prior to or concurrently with the
First Closing, two
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(2) nominees of Pioneer Ventures, Xxxxx X. Xxxxx and Xx. Xxxx Xxxxxx,
shall each be elected a director of the Company for successive
one-year terms. So long as Pioneer Ventures shall own any Preferred
Stock or Common Stock, the Company shall nominate and include in the
list of candidates for directors recommended by the Board of
Directors, and use its best efforts to have elected two nominees of
Pioneer Ventures. At or prior to the First Closing, the board of
directors shall be reconstituted so that five (5) board members shall
be elected, of which the Company's "CEO-to-be-hired" shall be entitled
to one board seat, the Company shall be entitled to select nominees to
two board seats, and Pioneer Ventures shall be entitled to select
nominees to two board seats, all subject to Section 1.10(b) hereof. In
furtherance of the foregoing, Turan M. Itil, Xxxx X. Itil, Xxxxxxxx
Itil, I. Xxxxxx Xxxxxxxx, Pierre Le Bars, Xxxxxx Xxxxxx, Xxxxxxx Xxxx,
Xxxx Xxxxx, Xxxxxx XxxXxxxxx, and Yasmin Itil Le Bars, or any trustees
(collectively "PRINCIPAL SHAREHOLDERS") holding the voting rights to
their shares, shall simultaneously execute and deliver to Pioneer
Ventures a Voting and Shareholders Agreement confirming the terms of
Sections 1.10 and 6.4 hereof.
(b) ADDITIONAL NOMINEES OF PIONEER VENTURES ON DEFAULT. In the event
that the Company shall default in the due and punctual payment of any
installment of the cumulative dividends on the Preferred Stock when and
as the same shall become due and payable and such default shall
continue for 30 days, in addition to the other remedies available to
Pioneer Ventures, the Company shall nominate, and use its best efforts
to have promptly elected or appointed such number of individuals as
shall, when added to the two directors referred to in Section 1.10(a),
be a sufficient number of nominees to the board which nominees are
selected by Pioneer Ventures to constitute a majority of the total
number of directors of the board of directors of the Company for so
long thereafter as Pioneer Ventures shall own any Preferred Stock or
Common Stock. To facilitate the foregoing, the Company has,
concurrently with the execution hereof, amended its by-laws in a manner
satisfactory to Pioneer Ventures. The Company hereby covenants it shall
not change such amended provision of its by-laws without Pioneer
Ventures' prior written consent. Failure to obtain such prior written
consent to any such change shall constitute an additional Event of
Default
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under the Preferred Stock.
1.11 TRANSFER AGENT. The Company agrees to engage and charge the transfer
agent for the Common Stock as and with the duties of the transfer agent and
registrar of the Class C Preferred Stock. However, should the Company desire,
it may select Continental Stock Transfer Company as the transfer agent and
registrar for the preferred stock.
1.12 USE OF PROCEEDS.
A. FIRST CLOSING
The proceeds from the First Closing shall be applied and used to:
(i) prepare, develop and open the "Signature Memory Center" in New York
City and expend no more than $200,000 to accomplish such opening;
(ii) support the Company's operations in its contract research services
currently conducted by its Subsidiary, HZI, and expend no more than
$100,000;
(iii) pay certain accounts payable in accord with the approximately $509,200
July 15, 1998 combined accounts payable listing of the Company and its
Subsidiaries, provided however, Xx. Xxxxxxx Xxxx or a representative of
Ventures Management Partners LLC shall approve such payments before the
payments are made, including the settlements required under Sections
7.10, 7.11 and 7.12;
(iv) pay the costs of the Closing; and
(v) add the balance to the Company's working capital.
B. SECOND CLOSING
The proceeds of the Second Closing shall be used to:
(i) hire a Chief Financial Officer and re-engineer the financial systems;
the maximum amount of proceeds from the Second Closing which may be
allocated to this use is $30,000;
(ii) pursue and secure new contract research business; the maximum amount of
proceeds from the Second Closing which may be allocated to this use is
$30,000;
(iii) cover on-going marketing support/advertising to support and expand the
patient base of the Signature Center; the maximum amount of proceeds
from the Second Closing which may be allocated to this use is $40,000;
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(iv) cover on-going operation expenses of NeuroCorp for the three months
following the Second Closing; the maximum amount of proceeds from the
Second Closing which may be allocated to this use is $300,000;
(v) additional monies to be applied as defined by NeuroCorp's business
plan, which plan is to be developed by the new CEO and approved by
PVALP.
C. SUBSEQUENT CLOSINGS
The proceeds from the Subsequent Closings shall be applied and used as shall be
defined in the Business Plan to be developed by the CEO-to-be-hired, which
Business Plan is subject to approval by Pioneer Ventures. Pioneer Ventures may
require modifications to the Business Plan.
1.13 CONDITIONS PRECEDENT TO CLOSING.
A. FIRST CLOSING
In addition to the conditions precedent in Article VII, the conditions precedent
which shall be required to be completed by the Company prior to Pioneer Ventures
agreeing to consummate the First Closing are:
(a) the salary and wages of the Company on an annualized basis shall be
reduced a MINIMUM of 20% as compared with the aggregate salary and
wages paid or payable, on an annualized basis, at March 31, 1998. The
calculation of the 20% salary and wage reduction shall be exclusive of
reductions of tax obligations of the Company (E.G. FICA, Social
Security, etc.), fringe benefits or perks afforded to employees (E.G.
health insurance contribution obligations of the Company, automobile
allowances, bonuses, expense allowances, ETC.), or other Company
expenditures pertaining to employees; such calculation shall not
include the salary of the CEO-to-be-hired. The Company shall document
and certify such expense reduction prior to the Closing. The Company
shall maintain such reduced payroll amounts until at least the Company
shall become cash flow positive; such reductions shall not be
deferred, accrued or paid subsequently. New employment contracts shall
be entered into for the Company's key employees. Such contracts shall
be acceptable to Pioneer Ventures in form and substance. All
previously existing employment contracts shall be cancelled and voided
prior to Closing without penalty, liability or giving rise to any
early termination benefit or other claim whatsoever.
(b) the Company shall be actively pursuing new research contracts.
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(c) the Company shall become cash flow positive as soon as is practicable
consistent with the Business Plan to be generated with the
CEO-to-be-hired.
(d) the market price of the Company's Common Stock having a closing
bid price of no less than $5.00 for a period of thirty (30)
consecutive calendar days within five (5) calendar days of closing.
AND
(e) continuing compliance with and satisfaction of the terms and conditions
of this Agreement, and the Voting and Shareholders Agreement by the
Company and the Principal Shareholders.
B. SECOND CLOSING
The conditions precedent which shall be required to be completed by the Company
prior to Pioneer Ventures agreeing to consummate the Second Closing are:
(a) the hiring and commencement of full-time service of a CEO-to-be-hired,
which CEO shall be acceptable to Pioneer Ventures.
(b) the Company shall document and certify its reduced payroll expenses
prior to the First Closing, document and certify that the Company has
maintained such reduced payroll levels since the First Closing and that
such reductions have not been deferred, accrued or paid subsequently.
(c) the Company shall be in the process of securing new commitments for its
contract research services and shall document its progress to the
satisfaction of Pioneer Ventures.
(d) the Company shall have begun to implement new methods as to its
financial viability with the specific purpose and intent to become cash
flow positive as soon as is practicable.
(e) the market price of the Company's Common Stock shall have a closing bid
price of no less than $5.00 for a period of thirty (30) consecutive
calendar days within five (5) calendar days of closing.
(f) the Preferred Stock shall not be in default and all dividends due
thereunder shall have been paid in full to Pioneer Ventures.
(g) Accounting expenses shall be reduced so that its independent auditor
shall be paid an annualized rate of $25,000. Further, the Company is
authorized to hire a financial controller and a bookkeeper at annual
salaries of $75,000 and $55,000 respectively. All other material
accounting or bookkeeping expenses shall be eliminated.
(h) such other terms and conditions required in good faith by the General
Partner of Pioneer Ventures. And
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(i) the performance of the conditions precedent set forth in Article VII
hereof, and the continuing compliance with and satisfaction of the
terms and conditions of this Agreement, and the Voting and Shareholders
Agreement by the Company and the Principal Shareholders.
C. SUBSEQUENT CLOSINGS
Pioneer Ventures shall invest, in its sole discretion, up to an additional two
million five hundred thousand ($2,500,000) dollars provided that the Business
Plan to be developed and written, as is then modified, is approved by Pioneer
Ventures. The investment of the $2,500,000 shall be made in one or more
increments where each increment shall be no less than $250,000 and shall be
applied against specific milestones contained in the Business Plan. The
Milestones which, at a minimum, shall be required to be completed prior to
Pioneer Ventures agreeing to consummate the Subsequent Closing(s) are:
(a) the completion of a Business Plan prepared by the CEO-to-be-hired,
and approved by the General Partner of Pioneer Ventures,
(b) the completion and full operation of the Signature Memory Center as
defined in the Business Plan, and the completion and full operation of
at least two (2) other memory centers as defined in the Business Plan,
(c) the Company shall have secured contracts for clinical research to
generate gross revenues (excluding pass-through expenses) of $1,000,000
no later than December 31, 1998,
(d) the market price of the Company's Common Stock having a closing bid
price of no less than $5.00 for a period of six (6) consecutive months
within five (5) days of each subsequent closing.
(e) the Preferred Stock shall not be in default and all dividends due
thereunder shall have been paid,
(f) the Company shall maintain the 20% reduced payroll amounts required
under ss.1.13(a) hereof until at least the Company shall become cash
flow positive for a minimum period of three (3) consecutive months;
such reductions shall not be deferred, accrued or paid subsequently;
all increases in salary or wages by more than five (5%) percent per
employee or more than ten (10%) of total payroll shall be approved in
writing by Pioneer Ventures prior to implementing such increase.
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(g) Accounting expenses shall be maintained at the levels required by
Section.1.13(g) No other material accounting or bookkeeping expenses
shall be permitted without the prior approval of Pioneer Ventures. And
(h) such other terms and conditions required in good faith by the General
Partner of Pioneer Ventures.
(i) if the Company is not cash flow positive after December 31, 1998 and
fails to remain cash flow positive on a quarter-to-quarter to basis
thereafter, Pioneer Ventures shall have the right to nominate a
majority of the board of directors of the Company.
(j) the performance of the conditions precedent set forth in Article VII
hereof, and the continuing compliance with and satisfaction of the
terms and conditions of this Agreement, and the Voting and Shareholders
Agreement by the Company and the Principal Shareholders.
D. INTERIM MILESTONES
(a) The milestones for the first 3 months following the hiring of the new CEO
are:
i) develop a Strategic Plan for the Company which plan shall be subject
to approval by Pioneer Ventures;
ii) develop a business plan for a minimum of one year (which plan shall be
acceptable to Pioneer Ventures; and
iii) define and develop the management team of the Company and support
personnel, including responsibilities and expectations associated with
each position.
ARTICLE II. REGISTRATION RIGHTS
2.1 DEMAND REGISTRATION. The Company agrees that promptly upon the request
of Pioneer Ventures or its assigns (the "HOLDERS"), for so long as such
Holders in the aggregate, are holders of ten (10%) percent or more of the
Preferred Stock or Common Stock ("INITIATING HOLDERS"), on one (1) occasion,
shall, at the Company's sole cost and expense, use its best efforts to cause
any or all of the Preferred Stock and/or the underlying securities issuable
upon conversion of the Preferred Stock (collectively the "REGISTRABLE
SECURITIES"), to be the subject of an appropriate Registration Statement, so
as to enable the Initiating Holders to publicly offer without restriction
such securities. Upon receipt of a written request by the Initiating Holders,
the Company xxxx
Xxxx 13
promptly give written notice of the proposed registration to all other Holders
and as soon as practicable, use its diligent best efforts to effect such
registration with the Commission (including, without limitation, the execution
of an undertaking to file post-effective amendments, appropriate qualification
filings under applicable state securities (blue sky) laws and appropriate
compliance with applicable regulations issued under the 1933 Act). The Company
shall file such registration statement pursuant to the Securities Act of 1933,
as amended (the "1933 ACT") to register the Registrable Securities for resale.
The Company shall use its best efforts to cause such registration statement to
become and remain effective (including the taking of such steps as are
reasonably necessary to obtain the removal of any stop order) on a timely basis.
2.2 PIGGYBACK REGISTRATION. (a) So long as Pioneer Ventures or its assigns
are the holders of Preferred Stock or Common Stock, if the Company shall
register any of its securities for sale pursuant to any appropriate
Registration Statement under the 1933 Act, the Company shall be required to
offer the Holders the opportunity to register any or all the Registrable
Securities, without cost to the Holders thereof. In connection with these
piggy-back registration rights, the Company shall give all of the Holders of
such securities notice by certified mail at least thirty (30) business days
prior to the filing of such Registration Statement under the Act. The Holders
shall then have twenty-five (25) days to elect to include all or a portion of
its Registrable Securities for sale in the Registration Statement. (b) The
registration requirement shall not apply to a Registration Statement filed by
the Company pursuant to Form S-8 or S-4 with the sole and express purpose of
registering shares for employees or for stock incentive plans, or any other
inappropriate form. (c) If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company
will so advise the Holders. In such event, these registration rights shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter selected by the Company. In the event
that the lead or managing underwriter in its good faith judgment determines
that material adverse market factors require a limitation on the number of
shares to be underwritten, the underwriter may limit
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the number of Registrable Securities. In such event, the Company shall so advise
all holders of securities requesting registration, and the number of shares of
securities that are entitled to be included in the registration and underwriting
shall be allocated PRO RATA among all Holders and other participants in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities and other securities which they had requested to be included in such
registration statement at the time of filing the registration statement. If any
Holder disapproves of the terms of any such underwriting, he may elect to
withdraw therefrom by written notice to the Company and the underwriter,
provided such notice is delivered within 60 days of full disclosure of such
terms to such Holder, without thereby affecting the right of such Holder to
participate in subsequent offerings hereunder.
2.3 REGISTRATION COVENANTS. In the case of each registration effected by
the Company pursuant to this Article II, the Company will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense, the Company will:
(i) Keep such registration effective for a minimum period of 270 days or
until the Holder or Holders have completed the distribution described
in the registration statement relating thereto, whichever first
occurs; PROVIDED, HOWEVER, that in the case of any registration of
Registrable Securities on Form S-3 which are intended to be offered on
a continuous or delayed basis, such 270 day period shall be extended,
if necessary, to keep the registration statement effective until all
such Registrable Securities are sold, provided that Rule 415, or any
successor rule under the Securities Act, permits an offering on a
continuous or delayed basis, and provided further that applicable
rules under the Securities Act governing the obligation to file a
post-effective amendment, permit, in lieu of filing a post-effective
amendment which (1) includes any Prospectus required by Section
10(a)(3) of the Securities Act, or (2) reflects facts or events
representing a material or fundamental change in the information set
forth in the registration statement, the incorporation by reference of
information required to be included in (1) and (2) above to be
contained in periodic
Page 15
reports filed pursuant to Section 13 or 15(d) of the Exchange Act in
the registration statement;
(ii) Furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request; and
(iii) In connection with any underwritten offering, the Company and the
Holders will enter into any underwriting agreement reasonably
necessary to effect the offer and sale of Registrable Securities,
provided such agreement contains customary underwriting provisions and
provided further that if the underwriter so requests the underwriting
agreement will contain customary contribution provisions.
2.4 BLUE SKY REGISTRATION. The Company will use its best efforts to
register or qualify the Registrable Securities covered by any registration
statement under the 1933 Act and under such securities or blue sky laws in
such jurisdictions within the United States as Pioneer Ventures may
reasonably request; PROVIDED, HOWEVER, that the Company reserves the right,
in its sole discretion, not to register or qualify such shares of Common
Stock in any jurisdiction in which such shares of Common Stock do not satisfy
the requirements of such jurisdiction or in which the Company would be
required to qualify as a foreign corporation to do business in such
jurisdiction and is not so qualified therein. The Company covenants that
notwithstanding the above, that it shall, at a minimum, register or qualify
the Registrable Securities in the States of Connecticut and New York.
2.5 DEREGISTRATION. In the event the Company has not sold all of the
Registrable Securities included in the registration statement or prior to the
expiration of the 270 day registration period under Section 2.3, Pioneer
Ventures hereby agrees that the Company may deregister by post-effective
amendment any Registrable Securities of Pioneer Ventures covered by the
registration statement but not sold on or prior to such date. The Company
agrees that it will notify Pioneer Ventures of the filing and effective date
of each such post-effective amendment.
Page 16
2.6 RIGHT TO DELAY. The Company shall have the one-time right, after it
shall have received written notice pursuant to Section 2.1, to elect not to
file or to delay any such proposed registration statement by not more than 60
days, or to withdraw the same after the filing but prior to the effective
date thereof; such withdrawal shall renew the Demand Registration rights
under Section.2.1. In addition, the Company may delay the filing of any
registration statement requested pursuant to Section 2.1 hereof by not more
than 60 days if the Company, prior to the time it would otherwise have been
required to file such registration statement, determines in good faith that
the filing of the registration statement would require the disclosure of
non-public material information that, in its judgment, would be detrimental
to the Company if so disclosed or would otherwise adversely affect a
financing, acquisition, disposition, merger or other material transaction.
2.7 SELECTION OF UNDERWRITERS. If a Demand Registration pursuant to
Section 2.1 hereof involves an underwritten offering, both Pioneer Ventures
and the Company shall have the right to approve the investment banker or
investment bankers and manager or managers that will serve as the underwriter
with respect to the underwritten offering, and such approval shall not be
unreasonably withheld or delayed without a material reason stated in writing.
2.8 PRINCIPAL SHAREHOLDERS. The Company will not file a registration
statement on behalf of any Principal Shareholder (as that term is defined in
the Voting and Shareholders Agreement between Pioneer Ventures and certain
shareholders of the Company, dated the date hereof) as selling shareholders
without the prior written approval of Pioneer Ventures, which approval shall
not be unreasonably withheld.
2.9 TRANSFERABILITY OF REGISTRATION RIGHTS. The registration rights
described in Sections 2.1 and 2.2 are freely transferable by the holders of
Registrable Securities to any person to whom such holder transfers its
Registrable Securities.
2.10 INDEMNIFICATION BY COMPANY RE REGISTRATION RIGHTS. The Company will
indemnify each Holder, each of its officers, directors and partners, and each
person controlling such Holder,
Page 17
with respect to which registration, qualification or compliance has been
effected pursuant to this Article II, and each underwriter, if any, and each
person who controls any underwriter against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering statement, notification or the like incident to any
such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation by
the Company of the Securities Act or any rule or regulation thereunder
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and will reimburse each such Holder, each of its officers, directors and
partners, and each person controlling such Holder, each such underwriter and
each person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating and defending any
such claim, loss, damage, liability or action, PROVIDED THAT the Company will
not be liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by such Holder
or underwriter and stated to be specifically for use therein.
2.11 INDEMNIFICATION BY HOLDER. Each Holder will, if Registrable Securities
or other securities held by him are included in the securities as to which
such registration, qualification, or compliance is being effected, indemnify
the Company, each of its directors and officers and each underwriter, if any,
of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of the
Securities Act and the rules and regulations thereunder, each other such
Holder and each of their officers, directors, and partners, and each person
controlling such Holder, for a period of one year from the effective date of
such registration statement, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
in any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or
Page 18
necessary to make the statements therein not misleading, and will reimburse the
Company and such Holders, directors, officers, partners, persons, underwriters
or control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder and stated to be specifically for use
therein provided, however, that the obligations of such Holders hereunder shall
be limited to an amount equal to the proceeds to each such Holder of securities
sold pursuant to this Article II.
2.12 NOTICE OF INDEMNITY AND DEFENSE. Each party entitled to
indemnification under this Section (the "INDEMNIFIED PARTY") shall give
notice to the party requiring to provide indemnification (the "INDEMNIFYING
PARTY") promptly after such Indemnified Party has actual knowledge of any
claim as to which indemnity may be sought, and shall permit the Indemnifying
Party to assume the defense of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or any litigation resulting therefrom,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnified Party of its obligations under this Article II. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect to such claim or litigation. Each
Indemnified Party shall furnish such information regarding itself or the
claim in question as an Indemnifying Party may reasonably request in writing
and as shall be reasonably required in connection with the defense of such
claim and litigation resulting therefrom.
ARTICLE III. CO-SALE PROVISIONS
Page 19
3.1 THIRD-PARTY OFFER AND NOTICE. Any voluntary or involuntary transfer of
the capital stock of the Company by any Principal Shareholder will be subject
to a participation right of co-sale by Pioneer Ventures or its assigns on a
PRO RATA fully diluted basis. If any one or more of the Principal
Shareholders obtains from a third party ("THIRD PARTY PURCHASER") an offer to
purchase any amount of their Shares, such Principal Shareholders shall submit
a written notice (the "CO-SALE NOTICE") to Pioneer Ventures disclosing the
amount of Shares proposed to be sold, the offered purchase price, the
proposed closing date, and the total number of Shares owned by the Principal
Shareholders.
3.2 CO-SALE RIGHT OF PARTICIPATION. Upon receipt of a Co-Sale Notice from
any Principal Shareholders, Pioneer Ventures or its assigns may elect to
participate in such transaction and shall have the right to offer its
securities, at the same price and on the same terms, on a fully diluted PRO
RATA basis with the proposed selling shareholder(s) as set forth in the offer
made by the Third Party Purchaser. Each participating selling party shall in
turn be entitled to receive at the applicable closing the net proceeds of the
sale allocable to the securities sold on behalf of each selling shareholder,
after deduction of such selling shareholder's proportionate share of the
reasonable expenses of the sale. These co-sale provisions will not apply to
any sale of securities pursuant to a distribution to the public, whether
pursuant to a registered public offering, Rule 144 or otherwise. If less than
all of a shareholder's securities are being sold pursuant to this Article
III, the securities to be sold shall be determined on a PRO RATA fully
diluted basis.
3.3 NOTICE OF INTENT TO PARTICIPATE IN CO-SALE. If Pioneer Ventures wishes
to participate in any sale under this Article III, then Pioneer Ventures
shall notify the selling Principal Shareholders in writing of such intention
as soon as practicable after such Pioneer Ventures' receipt of the Co-Sale
Notice made pursuant to Section 3.1, and in any event within fifteen (15)
days after the date of such Co-Sale Notice has been received. Such
notification shall be delivered in person or by facsimile to the Principal
Shareholders at the Company's offices.
Page 20
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company makes the following representations and warranties to
Pioneer Ventures each of which shall be deemed material, and Pioneer Ventures,
in executing, delivering and consummating this Agreement, have relied and will
rely upon the correctness and completeness of each of such representations and
warranties:
4.1 ORGANIZATION, QUALIFICATION AND CORPORATE POWER. The Company is a
corporation duly organized and validly existing and in good standing under the
laws of the State of Nevada and has all corporate power necessary to engage in
the lines of business in which it is presently engaged. The Company is not
qualified to transact business as a foreign corporation in any jurisdiction;
such lack of qualification shall not have a material adverse effect on the
business and operations of the Company. The Company shall use its best efforts
to apply and qualify in the State of New York immediately after the First
Closing for such foreign corporation qualification.
4.2 SUBSIDIARIES. The Company has no subsidiaries or affiliated entities,
nor is it the subsidiary or affiliate of any other corporation or business
entity EXCEPT for (a) Memory Centers of America, Inc., (b) HZI Research
Center, Inc., (c) Telemap, Inc. (collectively "SUBSIDIARIES"), (d) New York
Institute for Medical Research, Inc., (e) Manhattan Westchester Medical
Services, P.C. and (e) NeuroCare, Ltd. (collectively "AFFILIATES"). The
Subsidiaries are all wholly owned by the Company. The ownership of the
affiliates are as follows: ____________. The Subsidiaries and affiliates are
corporations duly organized and validly existing and in good standing under
the laws of the States of__________ and _________, respectively; are each
duly qualified to transact business as foreign corporations and in good
standing in the states of New York, ____________ being all states in which
their respective activities require qualification and the failure to be so
qualified would have a material adverse effect on the business and operations
of the Company or its Subsidiaries or affiliates; and have all corporate
power necessary to engage in the business in which they are presently
engaged. The Subsidiaries are controlled by the Company, as such term is
governed by Section 20(a) of the 1933 Act. For purposes of this section, the
term "SUBSIDIARY" is defined to mean any
Page 21
corporation or other business entity, a majority of whose outstanding voting
stock or ownership interests entitled to vote for the election of directors or
such other governing body is, at the time, owned by the Company and/or one or
more other subsidiaries. The term "AFFILIATE" is defined as that term is defined
in the federal securities laws and the regulations of the Commission pursuant to
those laws, excluding the term "individuals".
4.3 AUTHORIZATION OF AGREEMENT. The execution, delivery and performance by
the Company of this Investment Agreement and all other documents and
instruments contemplated hereby have been duly authorized by all requisite
corporate action. A true, correct and valid copy of the Company's Board of
Director's resolution(s) authorizing the transactions and securities to be
issued hereunder has been delivered to Pioneer Ventures. Neither the
execution and delivery of this Agreement nor compliance by the Company with
any of the provisions hereof nor the consummation of the transactions
contemplated hereby, will:
(a) violate or conflict with any provision of the Certificate of
Incorporation or bylaws of the Company or its Subsidiaries or any
contract to which the Company or any of its Subsidiaries is bound;
(b) violate or, alone or with notice or the passage of time, result
in the material breach or termination of, or otherwise give any contracting
party the right to terminate, or declare a material default under, the
terms of any material agreement or other document or undertaking, oral
or written to which the Company or any of its Subsidiaries is a party
or by which it or its properties or assets may be bound (except for
such violations, conflicts, breaches or defaults as to which required
waivers or consents by other parties have been, or will be obtained,
prior to the Closing);
(c) result in the creation or imposition of any lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company or any of its Subsidiaries pursuant to the terms of any such
agreement or instrument;
Page 22
(d) violate any judgment, order, injunction, decree or award against,
or binding upon the Company or any of its Subsidiaries or affiliates or
upon their properties or assets; or
(e) violate any law or regulation of any jurisdiction relating to
either the Company or any of its respective securities, assets or
properties or of any of its Subsidiaries or affiliates.
4.4 VALIDITY. This Agreement has been duly executed and delivered by the
Company and constitutes the valid and legally binding obligation of the
Company, enforceable in accordance with its terms.
4.5 GOVERNMENT APPROVAL. No registration or filing with, or consent or
approval of, or other action by, any federal, state or other governmental
agency or instrumentality is or will be necessary for the valid execution,
delivery and performance of this Investment Agreement or any other document
contemplated hereby.
4.6 CAPITALIZATION. There are (a) one hundred million (100,000,000) shares
of Common Stock, $.001 par value, and (b) one hundred fifty thousand
(150,000) shares of Class B Preferred Stock, no par value, and (c) two
million (2,000,000) shares of Class C Preferred Stock, $0.001 par value,
authorized for issuance under the Company's certificate of incorporation, as
amended (delivered along with the Company's bylaws to Pioneer Ventures).
Immediately prior to the Closing Date, there will be eleven million two
hundred thirteen thousand eight hundred six (11,213,806) shares of Common
Stock issued and outstanding and one hundred fifty thousand (150,000) shares
of Class B Preferred Stock issued and outstanding, no Class A Preferred Stock
of any series are currently issued and outstanding, and no Class C Preferred
Stock of any series shall have been issued. No shares of Common Stock are
issuable pursuant to existing agreements and there are no outstanding
warrants, options or other securities convertible into the Common Stock of
the Company, EXCEPT the Class A and Class B warrants of which each are
convertible into one (1) share of common stock at an exercise price of $1.00
per share. No other shares of Common Stock are
Page 23
issued or outstanding or committed for issuance EXCEPT those committed for
issuance upon conversion of the Preferred Stock to be issued to Pioneer Ventures
hereunder, and employee and consultants' options to purchase an aggregate of
three hundred fifty thousand (350,000) shares of common stock.
4.7 THE FINANCIAL STATEMENTS. The Company has heretofore furnished to
Pioneer Ventures copies of (a) the Company's consolidated audited financial
statements for its fiscal year ended December 31, 1997, (b) the Company's
consolidated unaudited interim financial statement for the three months ended
March 31, 1998, and (c) the Company's consolidated unaudited interim
financial statement for the six months ended June 30, 1998, (hereinafter
collectively referred to as the "FINANCIAL STATEMENTS"). Such financial
statements are true, correct and complete in all material respects, and
accurately set forth, in all material respects, the financial condition of
the Company and its Subsidiaries as of their respective dates, and the
results of operations for the fiscal periods involved, and were prepared in
conformity with generally accepted accounting principles and practices
consistently applied and are annexed hereto as EXHIBIT 4.7-A. The financial
statements fairly present in all material respects the financial condition
and results of operations of the Company and its Subsidiaries at the dates
thereof and for the periods covered thereby. Except as set forth in such
financial statements, the Company and/or its Subsidiaries had, as of July 15,
1998, no material obligation or liability, whether absolute, accrued,
contingent or otherwise.
(a) The Company and/or its Subsidiaries have good and marketable title
to all of its property and assets subject to no mortgage, pledge, lien or
other encumbrance except as disclosed in EXHIBIT 4.7-B annexed hereto
and made a part hereof.
(b) The Company and/or its Subsidiaries had no obligations,
liabilities or commitments, contingent or otherwise, of a material nature
which were not provided for except as set forth in EXHIBIT 4.7-A and
EXHIBIT 4.7-B and except those incurred in the normal course of business
since December 31, 1997 and July 15, 1998.
Page 24
(c) Since December 31, 1997 there has been no materially adverse
change in the nature of the business of the Company and/or its Subsidiaries
nor in any of their financial condition or property, other than changes in
the usual or ordinary course of business, and the Company has incurred
no obligations or liabilities nor made any commitments other than in
the usual and ordinary course of business or as disclosed in EXHIBIT
4.7-A and EXHIBIT 4.7-B.
(d) The Company and/or its Subsidiaries are not a party to any
employment contract with any officer, director, or stockholder, or to any
lease, agreement or other commitment not in the usual and ordinary course
of business, nor to any pension, insurance, profit-sharing or bonus plan,
except as disclosed in EXHIBIT 4.7-A and EXHIBIT 4.7-B AND 4.12.
4.8 PATENTS, TRADEMARKS, ETC. All of the officers, directors, principals
and the affiliates of the Company have assigned and transferred all of their
Patents, as defined below, to the Company. The Company and/or its
Subsidiaries own or possess, without any adverse claims with respect thereto,
and without known conflict with the rights of others, except as disclosed in
EXHIBIT 4.8, the rights to the patents, trademarks, service marks, trade
names, copyrights and licenses listed in EXHIBIT 4.8 hereto and the same
constitute all of the patents, trademarks, service marks, service names,
copyrights, and licenses necessary, used or useful in the conduct of the
business of the Company (collectively the "PATENTS"). The Company protects
all technical, trade secret and confidential information developed by and
belonging to the Company and/or its Subsidiaries, which has not been
patented, by maintenance of secrecy relating thereto, and the Company and/or
its Subsidiaries will continue to seek to protect all such information,
technology and intellectual property by maintenance of secrecy related
thereto.
4.9 TAXES. The Company and each of the Subsidiaries has filed all
applicable federal, state, county and local tax and franchise returns and
reports required to be filed by it and has paid (or, as to taxes not
currently due and payable, has made adequate provision in accordance with
generally accepted accounting principles for the payment of) all income and
other taxes, assessments, franchise fees and other governmental charges
required by law (including, without
Page 25
limitation, withholding, social security, payroll and similar taxes) and all
interest and penalties, if any, thereon and all federal, state, local and other
taxes accruable since the filing of such returns have been properly accrued. No
adverse proceedings or other actions are pending or have been taken for the
assessment or collection of additional taxes of any kind from the Company and/or
its Subsidiaries for any period, and to the Company's knowledge, no
investigation by the Internal Revenue Service or any taxing authority affecting
the Company and/or its Subsidiaries is now pending. All taxes that the Company
and/or its Subsidiaries are required by law to withhold or collect have been
withheld or collected and have been paid over to the proper governmental
authorities or are properly held by the Company for such payment.
4.10 APPROVALS. No authorization or approval of, or filing with, or
compliance with any applicable order, judgment, decree, statute, rule or
regulation of, any court or governmental authority, or approval, consent,
release or action of any third party, is required in connection with the
execution and delivery by the Company of, or the performance or satisfaction
of any agreement of the Company contained in or contemplated by, this
Agreement.
4.11 LITIGATION. The Company and its Subsidiaries are not a defendant, nor
are they a plaintiff against whom a counter-claim has been asserted in any
actions, suits, claims, arbitrations, administrative or other proceedings or
governmental investigations seeking $5,000 or more in damages, or any
equitable relief, pending or, to the best of the Company's knowledge,
threatened against, relating to or affecting the Company or any of the
Subsidiaries, or their respective business, operations or assets, whether or
not fully covered by insurance, or which question or seek to prevent
consummation of the transactions provided for in this Agreement, whether at
law or in equity, or before or by any Federal, state, local, foreign or other
governmental department, agency or instrumentality, nor to the best of its
knowledge is there any basis therefor. The Company and the Subsidiaries are
not bound or adversely affected by or in default with respect to any
judgment, order, writ, injunction or decree of any court or of any
governmental department, agency or instrumentality.
4.12 SCHEDULE OF DOCUMENTS. The schedule of contracts including a summary
in tabular
Page 26
form of all material terms attached hereto as EXHIBIT 4.12 lists any and all
material (material for purposes of this paragraph only shall mean $25,000)
contracts or other material commitments or obligations relating to the Company
and its Subsidiaries, (a) to which a Principal Shareholder and/or officer or
director of the Company or any Subsidiary is a party, (b) all leases of real
and/or personal property, (c) union collective bargaining, employment,
management and consulting agreements to which the Company or any Subsidiary is a
party, (d) compensation plans, bonus plans, deferred compensation arrangements,
pension and retirement plans, profit sharing plans, stock purchase and stock
option plans, (e) loan agreements and notes, (f) options to purchase property,
(g) stockholder agreements, and (h) all other material contracts or commitments
to which the Company is a party. Except as listed on EXHIBIT 4.12,, neither the
Company nor any of its Subsidiaries are a party to or bound by any contract or
commitment (or group of related contracts or commitments), other than contracts,
or agreements in the ordinary course of business; nor is the Company nor any of
its Subsidiaries bound by any charter, contractual or other corporate
restriction that materially and adversely affect or could affect its business,
financial condition or prospects, or which restricts its right or ability to
operate its business as conducted or proposed to be conducted. On or prior to
the date hereof, the Company has delivered to Pioneer Ventures or a
representative thereof, a true and correct copy of each of the documents listed
in EXHIBIT 4.12.
4.13 NO DEFAULTS. The Company and the Subsidiaries are not in violation of,
breach of or default under, and no event (including, without limitation,
execution of and consummation of the transactions provided for in this
Agreement) has occurred which with the passage of time or notice from or action
by any party thereto or otherwise could result in a violation of or default
under, or give any other person the right to terminate, as the case may be, any
indenture, mortgage, security, loan, lease or other material agreement to which
the Company or any of the Subsidiaries is a party or by which it is bound or
result in the creation, imposition or acceleration of any material lien of any
nature in favor of any other person.
4.14 LACK OF FELONIES. Neither the Company nor its Subsidiaries nor any of
their respective principals, directors, or executive officers have been
convicted of or pled guilty to any
Page 27
felony under the laws of the United States or any state thereof. No criminal
arrests, proceedings or actions are pending, nor have any been threatened in the
last thirty-six (36) months against any of such persons.
4.15 NO JUDGMENTS. There are no judgments, decrees, binding decisions
outstanding against the Company or any of its Subsidiaries which were issued in
any legal proceeding of any kind by any court, arbitrator, panel, or other
governing or determining authority.
4.16 INSURANCE. The Company and its Subsidiaries are covered by policies of
general liability insurance with coverage of at least $_________ with a
deductible of $5,000, and workers' compensation insurance and extended coverage
on its property. There does not exist, nor has there been, any lapse in the
coverage under such insurance policies. Such policies are carried by a reputable
and financially stable insurance company and are sufficient to cover risks as
are customarily insured against by similar businesses. The Company represents it
has adequate insurance to replace a substantial amount of its assets.
4.17 NO BROKERS. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on directly with Pioneer
Ventures by the Company, without the intervention of any broker, finder,
investment banker (except Pioneer Ventures Corp.), or other third party. The
Company has not engaged, consented to, or authorized any broker, finder,
investment banker or other third party to act on its or his behalf, directly or
indirectly, as a broker or finder in connection with the transactions
contemplated by this Agreement.
4.18 LOANS AND LIENS. Attached hereto as EXHIBIT 4.18 is a complete and
accurate list of all secured and unsecured loans to which the Company or any
of its Subsidiaries is a party as a borrower, debtor, guarantor or as a party
obligated thereunder and all other financial obligations or judgments to
which they are subject. Such schedule sets forth in tabular form the identity
of the borrower, lender, any guarantors, the original principal amount, the
principal amount due at a current date within 30 days hereof, the current
standing of such obligation, the due date, the interest rate, the
Page 28
amount of interest due with in a recent date, and a summary of any material
provisions not requested herein.
4.19 SOLVENCY. The Company has not admitted in writing an inability to pay
its debts generally as they become due, filed or consented to the filing
against it of a petition in bankruptcy or a petition to take advantage of any
insolvency act, made an assignment for the benefit of creditors, consented to
the appointment of a receiver for itself or for the whole or any substantial
part of its property, or had a petition in bankruptcy filed against it, been
adjudicated a bankrupt, or filed a petition or answer seeking reorganization
or arrangement under the federal bankruptcy laws or any other laws or of the
United States or any other jurisdiction.
4.20 REGISTRATION RIGHTS. Except as provided for herein, and except for the
registration statement last filed on December 9, 1997 which the Company is
obligated to complete, the Company is not a party to any agreement or commitment
that obligates the Company to register under the Securities Act of 1933, as
amended (the "1933 ACT"), any of the Company's presently outstanding securities
or any of the Company's securities that may hereafter be issued.
4.21 COMPLIANCE WITH SECURITIES LAWS. The offer, grant, sale, and/or
issuance of the Shares shall not be in violation of the 1933 Act, the
Securities Exchange Act of 1934, as amended, (the "EXCHANGE ACT") any state
securities or "blue sky" laws, or the Company's organization documents such
as the certificate of incorporation or bylaws, when offered, sold and issued
in accordance with this Agreement.
4.22 TRANSFER RESTRICTIONS. There are no restrictions on the transfer of
capital stock of the Company imposed by its certificate of incorporation,
bylaws, other organization documents, any agreement to which the Company is a
party (other than those agreements expressly contemplated by this Agreement),
any order of any court or any governmental agency to which the Company is
subject, or any statute other than those imposed by relevant state and
federal securities laws.
Page 29
4.23 RELATED PARTY TRANSACTIONS. There are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors or
other "affiliates" (as defined in Rule 405 promulgated under the 1933 Act),
EXCEPT as outlined on EXHIBIT 4.23.
4.24 MISCELLANEOUS. Except as set forth in EXHIBIT 4.12, Exhibit 4.7-A or
Exhibit 4.7-B or the Financial Statements or notes thereto, (a) the Company is
not a party to or bound by any distribution, sales agency, franchise or similar
agreement or understanding that relates to the sale or distribution of its
products and services, (b) the Company does not have a sole-source supplier of
significant goods and services (other than utilities) with respect to which
practical alternative sources are not available on comparable terms and
conditions, (c) there are neither pending, nor threatened, any labor
negotiations involving or affecting the Company, and no organizing activities
involving union representation exists in respect of any of its employees, (d)
the Company is not bound by any warranties relating to its products or services,
and (e) there has been no assertion of any breach of product or service
warranties that could have a material adverse affect on the business, financial
condition or prospects of the Company. Neither the Company nor any of its
employees, consultants, officers or directors is prohibited from engaging in any
business activity that is currently carried on or contemplated by the Company,
by reason of any restrictive covenant or agreement, including but not limited
to, a covenant not-to-compete.
4.25 ADDITIONAL REPRESENTATIONS. The Company represents and warrants that:
(a) The Investment to be consummated by Pioneer Ventures in the
Company is NOT opposed by its board of directors;
(b) The Company is NOT engaged as a business in real estate
investments, and is not a real estate operating company;
(c) The Company is NOT undergoing a bankruptcy liquidation;
(d) The securities to be issued upon consummation of the Investment
are either exercisable for, or convertible into, equity securities at a
pre-determined exercise price or conversion ratio;
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(e) The Company is NOT offering as an investment or otherwise any
uncovered options, or any transaction in which securities are sold short in
an uncovered transaction or which would be in violation of Section 16(c)
of the Securities Exchange Act of 1934, as amended, PROVIDED, HOWEVER,
that nothing in this subsection (e) shall prevent Pioneer Ventures from
acquiring options or warrants exercisable for, or other securities
convertible into, equity securities or assets at a pre-determined
exercise price or conversion ratio;
(f) The Company and its subsidiaries are NOT domiciled in any country
that is, at the time of the closing of the Investment and will ensure that,
at the time of the conversion or partial conversion of any of the
Debentures, a participant in an international boycott illegal under
United States law or opposed by the United States government;
(g) The Company is NOT an investment company registered or required to
be registered under the Investment Company Act of 1940, as amended;
(h) The Company conducts NO operations in Northern Ireland and will
ensure that at the time of the conversion or partial conversion of any of
the Debentures that it conducts NO operations in Northern Ireland unless
the Company complies with the XxXxxxx principles and Pioneer Ventures
agrees that the Company is in compliance with the XxXxxxx principles.
For purposes of this Certificate, a corporation will be considered to
be "conducting operations in Northern Ireland" if it has facilities and
employees in Northern Ireland, either directly or through one or more
subsidiaries; and
(i) The Company is NOT and shall NOT be engaged in any form of
business in Iran which could be considered contrary to the foreign policy
or national interests of the United States.
4.26 USE OF PROCEEDS. The Company represents it shall use and apply the
proceeds from the stock purchase through the First and Second Closings only
for such purposes as set forth in Section 1.12 hereof.
4.27 MEDICAL REGULATIONS. The Company and the Subsidiaries and their
operations do not violate any state or federal laws or regulations with
respect to the corporate practice of medicine, fee-splitting, anti-kickback
laws, physician referral laws, solicitation, payment, or receiving direct or
indirect remuneration in violation of Medicare, Medicaid, Xxxxx II, the
Social Security Act, or any other laws or regulations to which the Company or
its Subsidiaries are subject. No notices of deficiency or notices of any kind
which may inhibit the operations of the Company or its Subsidiaries has been
received from the U.S. Food & Drug Administration, or any other
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governmental agency or authority.
4.28 COMPLETE DISCLOSURE. No representation, warranty or statement, written
or oral, made by the Company in this Agreement or in any schedule, exhibit,
certificate or other document furnished or to be furnished to the Pioneer
Ventures, including any and all documents filed with the U.S. Securities and
Exchange Commission ("COMMISSION") within the past 12 months, pursuant hereto
or otherwise, in connection with the transactions contemplated hereby, has
contained, contains or will contain at the closing date any untrue statement
of a material fact or has omitted, omits or will omit at the closing date a
material fact required to be stated therein or necessary to make the
statements contained therein not misleading. Without limiting the generality
of the foregoing, the Company is current in all filings required under the
Exchange Act.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PIONEER VENTURES
Pioneer Ventures represents and warrants as follows:
5.1 ORGANIZATION. Pioneer Ventures is a limited partnership duly organized
and validly existing under the laws of the State of Connecticut.
5.2 NO BREACH. The execution and delivery of this Agreement by Pioneer
Ventures and the consummation of the transactions contemplated hereby will
not violate any judgment, order, injunction, decree, or award against, or
binding upon, Pioneer Ventures or upon its properties or assets.
5.3 AUTHORITY FOR AND BINDING NATURE OF AGREEMENT. This Agreement and the
documents delivered pursuant hereto have been duly executed and delivered by
Pioneer Ventures are valid and binding upon it in accordance with its terms.
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5.4 BROKERS. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on directly with the
Company by Pioneer Ventures without the intervention of any broker, finder,
investment banker (except Pioneer Ventures Corp.), or other third party.
Pioneer Ventures has not engaged, consented to, or authorized any broker,
finder, investment banker (except Pioneer Ventures Corp.), or other third
party to act on its behalf, directly or indirectly, as a broker or finder in
connection with the transactions contemplated by this Agreement.
5.5 INVESTMENT. With respect to the shares to be issued to Pioneer
Ventures pursuant to Article 1, including the shares obtainable upon
conversion of the Preferred Stock, Pioneer Ventures hereby represents and
warrants that it is acquiring the shares for its own account for investment
purposes only and not with a view to any distribution or public offering
thereof. Pioneer Ventures represents that it is experienced in evaluating and
making investments of the type contemplated by this Investment Agreement and
is financially able to bear the risks of such investment. Pioneer Ventures
understands that a restrictive legend relating to the above will be placed on
the stock certificates delivered to them by the Company on the Closing Date.
ARTICLE VI. AFFIRMATIVE COVENANTS
The Company hereby warranties and covenants that:
6.1 FINANCIAL. Between the date of the December 31, 1997 financial
statements, referred to in Section 4.7 hereof and the Closing Date, except as
contemplated or disclosed in this Agreement, the Company shall not have (i)
paid or declared any dividends on, or made any distributions in respect of,
or issued, purchased or redeemed, any of the outstanding shares of its
capital stock, or (ii) made or authorized any changes in its Certificate of
Incorporation or in any amendment thereto or in its bylaws, or (iii) made any
commitments or disbursements or incurred any obligations or liabilities of a
substantial nature and which are not in the usual and ordinary course of
business, or (iv) mortgaged or pledged or subjected to any lien, charge or
other encumbrance any
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of its assets, tangible or intangible, or (v) sold, leased, or transferred or
contracted to sell, lease or transfer any assets, tangible or intangible or
entered into any other transactions, except in the usual and ordinary course of
business, or (vi) made any loan or advance to any stockholder, officer or
director of the Company or to any other person, firm, or corporation, or (vii)
made any material change in any existing employment agreement or increased the
compensation payable or made any arrangement for the payment of any bonus to any
officer, director, employee or agent.
6.2 ACCESS. For so long as either Pioneer Ventures and/or its assigns or
partners own five (5%) percent or more of the Company's Common Stock directly or
through the possible conversion of its Preferred Stock all on a fully diluted
basis, the Company shall afford, at its sole cost and expense, to the officers,
attorneys, accountants and other authorized representatives of Pioneer Ventures
and/or its assigns free and full access, during regular business hours and upon
reasonable notice, to the books, records, personnel, accountants, attorneys, and
properties of the Company so that Pioneer Ventures may have full opportunity to
make such review, examination and investigation as it may desire of its
respective business and affairs. The Company will cause its employees,
accountants, and attorneys to cooperate fully with said review, examination and
investigation and to make full disclosure to Pioneer Ventures of all material
facts affecting its financial condition and business operation. Nothing herein
shall limit the rights of Pioneer Ventures and/or its assigns which are
available under or granted by applicable statutes with respect to access,
review, examination and investigations.
6.3 BOOKS OF RECORD AND ACCOUNT. The Company shall maintain at all times
proper books of record and account in accordance with generally accepted
accounting principles ("GAAP"), consistently applied, and for so long as
either Pioneer Ventures and/or its assigns or limited partners own five (5%)
percent or more of the Company's Common Stock directly or through the
possible conversion of its Preferred Stock all on a fully diluted basis, it
will permit any of Pioneer Ventures' officers or any of their authorized
representatives or accountants to visit, upon reasonable notice, and inspect
offices and properties, examine its books of account and other records, and
discuss its affairs, finances and accounts with its appropriate officers,
accountants and auditors, all at such reasonable
Page 34
times and reasonable frequency as Pioneer Ventures may request. In addition,
Pioneer Ventures shall be provided with copies of quarterly and annual financial
statements consisting of balance sheets, statements of operations, statements of
cash flows, statements of changes in stockholders equity and notes thereto all
prepared in accordance with GAAP. The annual financial statements shall be
audited in accordance with GAAP by an accounting firm acceptable to Pioneer
Ventures.
6.4 MEMBERSHIP ON BOARD. The Company's bylaws shall provide for a five (5)
person Board of Directors. Promptly upon the Closing Date and for so long as
Pioneer Ventures and/or its assigns or its limited partners collectively own
five (5%) percent or more of the Company's Common Stock directly or through the
possible conversion of Preferred Stock all on a fully diluted basis, the
Company's principal stockholders shall cause two (2) designees from Pioneer
Ventures to be nominated and elected to serve as directors of the Company.
Present Company management shall be entitled to designate two (2) directors to
serve on the Board; Xx. Xxxxx and Xx. X. Xxxxxx shall be deemed acceptable by
all parties hereto as the current remaining board members. And the
"CEO-to-be-hired" shall be entitled to the fifth board seat; these designations
are subject to Pioneer Ventures' rights set forth in Section 1.10(b) hereof.
Except as provided for herein, additional membership on the Board shall require
majority approval of the remaining members of the Board of Directors or election
at a meeting of shareholders. At the organizational or first meeting of the
reconstituted Board of Directors, a Compensation Committee of the Board shall be
established. The Compensation Committee shall consist of three directors; a
designee of the Pioneer Ventures, a designee of the Principal Stockholders, and
one other person selected by the Board. The Compensation Committee shall be
maintained to consider and recommend to the Board of Directors matters
concerning the compensation of executives and employee awards of stock options
and other incentive compensation.
6.5 STOCK OPTION PLAN. The Company may retain its current stock option,
bonus or stock incentive plan or cancel such plan(s) and adopt a new stock
incentive plan in order to have the ability to incentivize its key employees,
future employees and others. The aggregate stock option or stock bonus pool
shall consist of that number of shares of the Common Stock of the Company
which,
Page 35
without the prior written consent of Pioneer Ventures, shall not exceed ten
(10%) percent of the fully diluted number of shares of the Common Stock of the
Company immediately following the investment herein. No shareholder beneficially
owning 250,000 shares or more of the Company's stock shall be eligible to
participate in such plan.
6.6 RULE 144 COMPLIANCE. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit
the sale of the shares to the public without registration, at all times after
ninety (90) days after any registration statement covering a public offering
of securities of the Company under the 1933 Act shall have become effective,
or at all times after the Company has a class of Securities registered under
the Exchange Act, the Company agrees to use its best efforts to: (i) make and
keep public information available, as those terms are understood and defined
in Rule 144 under the 1933 Act; (ii) use its best efforts to file with the
Commission (as hereinafter defined) in a timely manner all reports and other
documents required of the Company under the 1933 Act and the Exchange Act of
1934; (iii) furnish to each holder of Registrable Securities forthwith upon
request, a written statement by the Company as to the Company's compliance
with the reporting requirements of Rule 144 and of the 1933 Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as such
holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing such holder to sell any Registrable Securities
without registration; and (iv) use the Company's best efforts to satisfy the
requirements of all such rules and regulations (including the requirements
for current public information, registration under the Exchange Act and
timely reporting to the Commission) at the earliest possible date after its
first registered public offering.
6.7 UNDERTAKING TO FILE 34 ACT FILINGS. The Company undertakes to continue
filing its annual reports on Form 10-KSB and its quarterly reports on Form
10-QSB, or on such other appropriate forms, with the SEC for so long as Pioneer
Ventures holds a five (5%) percent or greater equity interest in the Company.
Page 36
6.8 NO BREACH. The Company will (i) use its best efforts to assure that
all of its representations and warranties contained herein are true in all
material respects as of the Closing as if repeated at and as of such time, and
that no material breach or default shall occur with respect to any of its
covenants, representations or warranties contained herein that has not been
cured by the Closing; (ii) not voluntarily take any action or do anything which
will cause a breach of or default respecting such covenants, representations or
warranties; and (iii) promptly notify Pioneer Ventures of any event or fact
which represents, or is likely to cause such a breach or default.
ARTICLE VII. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
PIONEER VENTURES TO CLOSE
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PIONEER VENTURES TO CLOSE. In
addition to the conditions precedent in Section.1.13, the obligation of Pioneer
Ventures to enter into and complete the Closing is subject to the fulfillment,
prior to or on the Closing Date, of each of the following conditions, any one or
more of which may be waived by Pioneer Ventures (except when the fulfillment of
such condition is a requirement of law), as well as the satisfactory completion
(in the sole opinion of Pioneer Ventures) of (i) an audit or review of the
books, records and accounts of the Company, and (ii) legal and other due
diligence.
7.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties of
the Company contained in this Agreement and in any written statement,
exhibit, certificate, schedule or other document delivered pursuant hereto or
in connection with the transactions contemplated hereby shall be true and
correct in all material respects as at the Closing Date, as if made at the
Closing and as of the Closing Date.
7.2 COVENANTS. The Company shall have performed and complied in all
material respects with all covenants and agreements required by this
Agreement to be performed or complied with by each of them prior to or at the
Closing.
Page 37
7.3 NO ACTIONS. No action, suit, proceeding or investigation shall
have been instituted, and be continuing before a court or before or by a
governmental body or agency, or shall have been threatened and be unresolved,
to restrain or to prevent or to obtain damages in respect of, the carrying
out of the transactions contemplated hereby, or which might materially affect
the right of Pioneer Ventures to own the Company's Stock or to operate or
control the assets, properties and business of the Company after the Closing
Date, or which might have a materially adverse effect thereon.
7.4 CONSENTS, LICENSES AND PERMITS. The Company shall have obtained
all consents, licenses and permits of third parties necessary for the
performance of its obligations under this Agreement, and such other consents,
if any, to prevent (i) agreements of the Company from terminating, the
termination of which, in the aggregate, would have a material adverse effect
on the business, financial condition or assets of the Company, or (ii) any
material indebtedness of the Company from becoming due or being subject to
becoming due with the passage of time or on notice as a result of the
performance of this Agreement, any other provision of this Agreement to the
contrary notwithstanding.
7.5 CERTIFICATE. Pioneer Ventures shall have received a certificate
in the form satisfactory to its counsel, dated the Closing Date, signed by an
authorized representative of the Company, confirming the substance and effect
of the representations and warranties set forth in Article IV hereto, and as
to the satisfaction of the conditions contained in sections 7.1 and 7.2.
7.6 LEGAL OPINION. Pioneer Ventures shall have received the written
opinion of the Company's Counsel, dated the Closing Date, in form and
substance satisfactory to Pioneer Ventures and its counsel, confirming the
substance and effect of certain of the representations and warranties set
forth in Article II hereto, that this Agreement is the valid and binding
obligation of the Company, enforceable in accordance with its terms, and as
to such other matters as Pioneer Ventures may request.
Page 38
7.7 NO MATERIAL ADVERSE CHANGE. There shall have been no materially
adverse change at the Closing Date in the business, assets, and properties,
financial status or prospects of the Company from December 31, 1997, except
as disclosed in EXHIBIT 4.7-A hereof.
7.8 AGREEMENTS WITH PRINCIPALS. The Company shall have received and
presented to Pioneer Ventures agreements from all officers, directors and the
Principal Shareholders of the Company containing the substantive provisions
of this Agreement with respect to co-sale rights, voting agreement as to
Board membership, restricted stock and restricted transfer provisions as well
as customary and satisfactory non-competition agreements between the Company
and its officers and key employees. Reference is hereby made to that certain
Voting and Shareholders Agreement between Pioneer Ventures and the Principal
Shareholders, and such agreement is of even date. That agreement provides
that any amendment, renewal or extension to said agreements shall require the
written consent of Pioneer Ventures. Further, any shares which are acquired
as a result of such agreements or are subject to a proxy or voting agreement
shall otherwise be subject to the substantive provisions of this Agreement
with respect to anti-dilution rights, voting agreement as to Board
membership, restricted stock and co-sale provisions.
7.9 KEY PERSON INSURANCE. The Company shall have applied for
Key-Person term life insurance, from a licensed and reputable insurance
company in the minimum face amount of $____________ each, insuring the lives
of __________________________. The Company shall be the designated
beneficiary and Pioneer Ventures shall be the designated loss payee. Renewal
of the policies after the first year term shall be at the discretion of the
Company's Board of Directors.
7.10 SETTLE WITH SKADDEN, ARPS.On or before the Second Closing the
Company shall have settled in full with the law firm of Skadden, Arps, Slate,
Xxxxxxx & Xxxx, L.L.P. for all payments owed for past legal services rendered
and expenses incurred. The settlement amount shall not exceed an amount which
shall be subject to the approval of Pioneer Ventures, and further, no amounts
from any of the Closings contemplated herein shall be permitted to be used
without the prior written approval of Pioneer Ventures. Final pay-off may
occur at Closing provided a signed settlement
Page 39
agreement or pay-off letter from such firm has been delivered, and the Company
delivers a check for such amount to Pioneer Ventures for delivery to such firm.
7.11 SETTLE WITH OPTON HANDLER XXXXXX.On or before the First Closing
the Company shall have settled in full with the law firm of Opton, Handler,
Xxxxxx & Landau, or Opton, Handler, Gottlieb, Xxxxxx & Xxxx, L.L.P., and/or
any affiliate law firm thereof for all payments owed for past legal services
plus actual out-of-pocket disbursements made on behalf of the Company
rendered and expenses incurred. The Settlement amount shall not exceed
$1,609. Further, such law firm shall agree that no more than $29,500 plus
actual out-of-pocket disbursements not to exceed $2,000 shall be owed as a
result of legal services related to the closing contemplated herein. Final
pay-off may occur at Closing provided a signed settlement agreement or
pay-off letter from such firm has been delivered, and the Company delivers a
check for such amount to Pioneer Ventures for delivery to such firm.
7.12 SETTLE WITH XXXXXXX & LIPTON, P.C. AND XXXXXXX & TOMERO, P.C.
The Company shall have settled in full with the accounting and auditing firms
of Xxxxxxx & Lipton, P.C. and Xxxxxxx & Xxxxxx, P.C. for all payments owed
for past accounting or auditing services rendered and expenses incurred. The
settlement amount shall not exceed $__________. Final pay-off may occur at
Closing provided a signed settlement agreement or pay-off letter from such
firm has been delivered, and the Company delivers a check for such amount to
Pioneer Ventures for delivery to such firm. Further, in the event such
accounting firm is replaced within the next thirty-six (36) months, such firm
or its successor shall agree that it shall issue in original signature form
such number of restatements of its then issued audits and such number of
original signature consents to be included in any filings made with the
Commission at a fixed total price of $100 for a total of five (5) versions of
the financial statements and five (5) consents to each SEC filing; thus such
accountants shall issue 5 signed original copies of the financial statements
and 5 signed original consents for each Commission filing and receive a total
of $100 for each incidence of filing with the Commission.
Page 40
7.13 PATENTS. All of the officers, directors, principals and the
affiliates of the Company shall have assigned and transferred all of their
Patents to the Company.
7.14 APPROVAL OF COUNSEL. All actions, proceedings, instruments and
documents required to carry out this Agreement, or incidental thereto, and
all other related legal matters shall have been approved as to form and
substance by Pioneer Ventures' counsel, which approval shall not be
unreasonably withheld or delayed.
7.15 REDUCTION OF SALARIES AND MODIFICATION OF EMPLOYMENT
AGREEMENTS.The Company shall modify all compensation arrangements and
employment agreements to (a) reduce total salary and wage compensation by a
minimum of twenty (20%) percent in the aggregate. The calculation of the 20%
salary and wage reduction shall be exclusive of reductions of tax obligations
of the Company (E.G. FICA, Social Security, ETC.), fringe benefits or perks
afforded to employees (E.G. health insurance contribution obligations of the
Company, automobile allowances, bonuses, expense allowances, ETC.), or other
Company expenditures pertaining to employees.; (b) limit or eliminate certain
benefits, (c) include a confidentiality clause, and if appropriate a
non-competition clause, and (d) assign all patents from the employee to the
Company.
7.16 ACCOUNTING EXPENSES. Accounting expenses shall be reduced from
the annualized amount of $90,000 paid to its independent auditor to an
annualized rate of $25,000. Further, the Company is authorized to hire
financial controller and a bookkeeper at annual salaries of $75,000 and
$55,000 respectively. All other material accounting or bookkeeping expense
shall be eliminated.
7.17 CONSENTS, LICENSES AND PERMITS. The Company, shall have
obtained all consents, licenses and permits of third parties necessary for
the performance of its obligations under this Agreement, and such other
consents, if any, to prevent (i) agreements of the Company from terminating,
the termination of which, in the aggregate, would have a material adverse
effect on the business, financial condition or assets of the Company or (ii)
any material indebtedness of the Company from becoming due or being subject
to becoming due with the passage of time or on notice
Page 41
as a result of the performance of this Agreement, any other provision of this
Agreement to the contrary notwithstanding.
7.18 ADDITIONAL DOCUMENTS. The Company shall have delivered all such
other certificates and documents as Pioneer Ventures or their counsel may
have reasonably requested.
ARTICLE VIII. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY TO CLOSE
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY TO CLOSE. The
obligation of the Company to enter into and complete the Closing is subject to
the fulfillment, prior to or on the Closing Date, of each of the following
conditions, any one or more of which may be waived by the Company (except when
the fulfillment of such condition is a requirement of law).
8.1 REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Pioneer Ventures contained in this Agreement and in any written
statement, exhibit, certificate, schedule or other document delivered
pursuant hereto or in connection with the transactions contemplated hereby
shall be true and correct in all material respects as at the Closing Date, as
if made at the Closing and as of the Closing Date.
8.2 COVENANTS. Pioneer Ventures shall have performed and complied in
all material respects with all covenants and agreements required by this
Agreement to be performed or complied with by it prior to or at the Closing.
8.3 NO ACTIONS. No action, suit, proceeding, or investigation shall
have been instituted, and be continuing before a court or before a
governmental body or agency, or have been threatened and be unresolved, to
restrain or prevent, or obtain damages in respect of, the carrying out of the
transactions contemplated hereby.
Page 42
8.4 ADDITIONAL DOCUMENTS. Pioneer Ventures shall have delivered all
such other certificates and documents as the Company or its counsel may have
reasonably requested.
8.5 APPROVAL OF COUNSEL. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental thereto, and all
other related legal matters, shall have been approved as to form and substance
by Company's counsel, Opton, Handler, Xxxxxx & Xxxxxx which approval shall not
be unreasonably withheld or delayed.
ARTICLE IX. CLOSING
9.1 LOCATION. The Closing provided for herein (the "CLOSING") shall
occur the offices of Pioneer Ventures or at such place and upon such date as
the Company and Pioneer Ventures mutually agree.
9.2 ITEMS TO BE DELIVERED BY THE COMPANY. At the Closing, the
Company will deliver or cause to be delivered to Pioneer Ventures:
(a) validly issued original certificates representing the Preferred
Stock in accordance with Article I hereof.
(b) the certificates required by section 7.5 hereof;
(c) the opinion of the Company's counsel, as required by section 7.6
hereof;
(d) the agreements required by Article VII hereof;
(e) the insurance binder and paid receipt required by section 7.9
hereof;
Page 43
(f) a draft or drafts for $70,000 payable to Ventures Management
Partners LLC as required by sections 11.1, 11.2, and 11.4 hereof;
(g) a draft for $15,250 payable to Xxxxxxx X. Xxxxxx, Esquire as
required by section 11.3 hereof; and
(h) such other certified resolutions, exhibits, instruments, documents
and certificates as are required to be delivered by the Company
pursuant to the provisions of this Agreement and pursuant to the
checklists presented by Pioneer Ventures or its counsel.
9.3 ITEMS TO BE DELIVERED BY PIONEER VENTURES. At the Closing, Pioneer
Ventures will deliver or cause to be delivered to the Company:
(a) a check or checks or evidence of wire transfer in the aggregate
amount of one million ($1,000,000) dollars, as specified in Article I
hereof; and
(b) such other certified resolutions, documents and certificates as are
required to be delivered by Pioneer Ventures pursuant to the provisions
of this Agreement.
ARTICLE X. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION; FEES
10.1 SURVIVAL. The parties hereto agree that their respective
representations, warranties, covenants and agreements contained in this
Agreement shall survive the Closing for a period of three (3) years.
10.2 INDEMNIFICATION. the Company agrees to save, defend and indemnify
Pioneer Ventures and its limited and general partners and their respective
officers, directors, managing members and the agents, as well as the attorneys,
accountants, or other representatives of such parties (jointly or severally
"INDEMNIFIED PARTIES") against, and hold them harmless from any and all
Page 44
liabilities, of every kind, nature and description, fixed or contingent
(including, without limitation, reasonable counsel fees, expert witness fees,
and expenses in connection with any action, claim or proceeding relating to such
liabilities) arising out of a material breach (a "material breach" shall be any
breach with a potential liability in excess of $5,000 as estimated by Pioneer
Ventures) of any of the representations and warranties contained herein and/or
any transaction or event commencing or occurring on or prior to the Closing
Date, which is not fully disclosed or provided for in EXHIBIT 4.7-A, EXHIBIT
4.7-B, and the accounts payable listing dated July 15, 1998 attached thereto,
this Agreement or the several exhibits hereto, including, without limitation,
any tax liabilities to the extent not so reflected or reserved against in the
Balance Sheet.
10.3 DEFENSE OF CLAIMS. Pioneer Ventures agrees to notify the
Company with reasonable promptness of any claim asserted against them in
respect of which the Company may be liable under this Agreement, which
notification shall be accompanied by a written statement setting forth the
basis of such claim and the manner of calculation thereof. The Company shall
have the right to defend any such claim(s) at its own expense and with
counsel of its choice; provided that Pioneer Ventures may participate in such
defense, if it so chooses, with its own counsel and at its expense. The
Company agrees that if any of the representations and warranties made by it
in this Agreement shall be finally determined not to have been true, correct
or complete when made, then the Company shall pay to Pioneer Ventures at the
time of such final determination an amount sufficient to indemnify Pioneer
Ventures and the other indemnified parties hereto to the full extent of its
losses and expenses sustained by reason thereof, including attorneys,
accountants, expert witnesses, and other professional fees and expenses.
10.4 RIGHTS WITHOUT PREJUDICE. The rights of Pioneer Ventures under
this Article are without prejudice to any other rights or remedies that it
may have by reason of this Agreement or as otherwise provided by law.
ARTICLE XI. FEES
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11.1 INVESTMENT BANKING FEES. The Company shall pay an investment
banking fee of $75,000 to the General Partner of the Limited Partnership
(Ventures Management Partners LLC) concurrently with its execution and
delivery of the this Agreement. The General Partner of Pioneer Ventures
hereby acknowledges receipt from the Company of a check in the amount of
$10,000 in payment of the fees and expenses set forth in this Section 11.1.
11.2 EXPENSES. The Company shall promptly pay and reimburse the
General Partner of Pioneer Ventures a non-accountable expense allowance of
$5,000 for its out-of-pocket expenses incurred in connection with visits to
the Company's facilities and other costs and expenses in connection with its
due diligence investigation of the Company.
11.3 LEGAL FEES. The Company shall pay at the First Closing the
attorneys fees and out-of-pocket expenses of counsel for Pioneer Ventures in
connection with the transactions contemplated hereby; such attorneys fees and
out-of-pocket expenses shall equal $25,000. It is acknowledged that $10,000
has been paid prior to Closing. In addition, the Company shall pay its own
counsel's fees and all of the expenses of the closing, including all search
fees, filing fees, governmental certification fees, third party investigation
or other due diligence fees for reports, filings or certifications requested
by Pioneer Ventures to effect the closing.
11.4 ACCOUNTING FEES. The Company shall pay at the First Closing the
accounting fees and out-of-pocket expenses of such accountants for Pioneer
Ventures in connection with the transactions contemplated hereby. Such fees
shall not exceed $3,000.
11.5 BREAK-UP FEE. At any time prior to the funding of the
investment, the Company may terminate this Agreement by written notice
without any obligation or liability other than to forfeit the pre-payment of
$10,000 paid as a commitment fee to the General Partner of the Limited
Partnership as then recharacterized as the non-refundable Break-up fee and
the legal fee paid.
ARTICLE XII. TERMINATION AND WAIVER
Page 46
12.1 TERMINATION. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the transactions
provided for herein abandoned at any time prior to the Closing Date:
(a) by mutual consent of Pioneer Ventures and the Company;
(b) by Pioneer Ventures if any of the conditions set forth in Article
VII and Sections 1.12 and 1.13 hereof, in its sole opinion, shall not
have been fulfilled on or prior to closing, or shall become incapable
of fulfillment, and shall not have been waived;
(c) by the Company if any of the conditions set forth in Article VIII
hereof shall not have been fulfilled on or prior to Closing, or shall
have become incapable of fulfillment, and shall not have been waived;
(d) by any party if any material legal action or proceeding shall have
been instituted or threatened seeking to restrain, prohibit, invalidate
or otherwise affect the consummation of the transactions contemplated
by this Agreement
In the event that this Agreement is terminated as described above, this
Agreement shall be void and of no force and effect, without any liability or
obligation on the part of any of the parties hereto, except the provisions of
Section 11.5 hereof.
12.2 WAIVER. Any condition to the performance of the Company or of
Pioneer Ventures which legally may be waived on or prior to the Closing Date
may be waived at any time by the party entitled to the benefit thereof by
action taken or authorized by an instrument in writing executed by the
relevant party or parties. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect the
right of such party at a later time to enforce the same. No waiver by any
party of the breach of any term, covenant, representation or warranty
Page 47
contained in this Agreement as a condition to such party's obligations hereunder
shall release or affect any liability resulting from such breach, and no waiver
of any nature, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be or construed as a further or continuing waiver of any such
condition or of any breach of any other term, covenant, representation or
warranty of this Agreement.
ARTICLE XIII. MISCELLANEOUS PROVISIONS
13.1 EXPENSES. Except as set forth in Article XI, each of the parties
hereto shall bear its own expenses in connection herewith.
13.2 MODIFICATION, TERMINATION OR WAIVER. This Agreement may be
amended, modified, superseded or terminated, and any of the terms, covenants,
representations, warranties or conditions hereof may be waived, but only by a
written instrument executed by the party waiving compliance. The failure of
any party at any time or times to require performance of any provision hereof
shall in no manner affect the right of such party at a later time to enforce
the same.
13.3 NOTICES. Any notice or other communication required or which
may be given hereunder shall be in writing and either be delivered personally
or be mailed, certified or registered mail, postage prepaid, and shall be
deemed given when so delivered personally, or if mailed, five (5) days after
the date of mailing, as follows:
If to Pioneer Ventures, to: Copies to:
PIONEER VENTURES ASSOCIATES Xxxxxxx X. Xxxxxx, Esquire
LIMITED PARTNERSHIP XXXXXXX X. XXXXXX, P.C.
651 Day Hill Road 651 Day Hill Road
P.O. Box 40 Windsor, Connecticut 06095-0040
Xxxxxxx, Xxxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx
Managing Director
Page 48
If to the Company, to: Copies to:
Office of the Chairman, Xx. Xxxxx Itil Xxxxx Xxxxxx, Esquire
NEUROCORP, LTD. OPTON, HANDLER, XXXXXX & LANDAU
000 Xxxxx Xxxxxx Xxxx 00 Xxxxxxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxx 00000 Xxx Xxxx, Xxx Xxxx 00000
The parties may change the persons and addresses to which the notices or other
communications are to be sent to it by giving written notice of any such change
in the manner provided herein for giving notice.
13.4 BINDING EFFECT AND ASSIGNMENT.
This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the parties hereto. No assignment of any rights or
delegation of any obligations provided for herein may be made by any party
without the express written consent of the other party.
13.5 ENTIRE AGREEMENT. This Agreement contains the entire Agreement
between the parties with respect to the subject matter hereof.
13.6 EXHIBITS. All Exhibits annexed hereto and the documents and
instruments referred to herein or required to be delivered simultaneously
herewith or at the Closing are expressly made a part of this Agreement as
fully as though completely set forth herein, and all references to this
Agreement herein or in any such Exhibits, documents or instruments shall be
deemed to refer to and include all such Exhibits, documents and instruments.
Any execution of this Agreement is subject to the receipt of current and
complete exhibits.
13.7 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with the laws of the State of Connecticut.
13.8 CONSENT TO JURISDICTION. The parties here to consent to
jurisdiction of the Courts of the State of Connecticut and to the U.S.
District Court in the District of Connecticut.
Page 49
13.9 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but which together shall
constitute one and the same instrument.
13.10 SECTION HEADINGS. The section headings contained in this
Agreement are inserted for convenience of reference only and shall not affect
the meaning or interpretation of this Agreement.
13.11 GENDER. Whenever the content of this Agreement permits, the
masculine, neuter or third person genders shall include the feminine, third
person and neuter genders, and reference to singular or plural shall be
interchangeable with the other.
WITNESS the execution of this Agreement as of the date first above
written.
PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP
BY: VENTURES MANAGEMENT PARTNERS LLC
its General Partner
BY: Pioneer Ventures Corp.
Its Managing Member
BY:
------------------------------
Xxxxxx X. Xxxxxx, President
NEUROCORP, LTD.
BY:
-------------------------------
Turan M. Itil, Chairman
ATTEST:
(Corporate Seal)
BY:
-------------------------------
Page 50
Xxxxxx Xxxxx, Chief Executive Officer
TABLE OF CONTENTS
Page
----
ARTICLE I. Sale and Transfer of Stock.........................................................................1
1.1 Series C Senior Convertible Preferred Stock..............................................................1
1.2 Purchase Price and Payment and Timing....................................................................2
1.3 Convertible into Common..................................................................................3
1.4 Cumulative Dividend......................................................................................3
1.5 Liquidation..............................................................................................4
1.6 Reservation of Shares; Shares to be Fully Paid...........................................................4
1.7 Anti-Dilution Rights.....................................................................................4
1.8 Percentage of Fully Diluted Shares.......................................................................5
1.9 Voting Rights and Prohibitive Covenants..................................................................6
1.10 Voting Agreements Concerning Directors................................................................6
1.11 Transfer Agent........................................................................................8
1.12 Use of Proceeds.......................................................................................8
1.13 Conditions Precedent to Closing.......................................................................9
ARTICLE II. Registration Rights..............................................................................12
2.1 Demand Registration.....................................................................................12
2.2 Piggyback Registration..................................................................................13
2.3 Registration Covenants..................................................................................14
2.4 Blue Sky Registration...................................................................................15
2.5 Deregistration..........................................................................................15
2.6 Right to Delay..........................................................................................16
2.7 Selection of Underwriters...............................................................................16
2.8 Principal Shareholders..................................................................................16
2.9 Transferability of Registration Rights..................................................................16
2.10 Indemnification by Company re Registration Rights....................................................17
2.11 Indemnification by Holder............................................................................17
2.12 Notice of Indemnity and Defense......................................................................18
ARTICLE III. Co-Sale Provisions...............................................................................19
3.1 Third-Party Offer and Notice............................................................................19
3.2 Co-Sale Right of Participation..........................................................................19
3.3 Notice of Intent to Participate in Co-Sale..............................................................19
ARTICLE IV. Representations and Warranties of the Company....................................................20
4.1 Organization, Qualification and Corporate Power.........................................................20
4.2 Subsidiaries............................................................................................20
4.3 Authorization of Agreement..............................................................................21
4.4 Validity. ...........................................................................................22
4.5 Government Approval.....................................................................................22
4.6 Capitalization..........................................................................................22
4.7 The Financial Statements................................................................................23
4.8 Patents, Trademarks, Etc................................................................................24
4.9 Taxes. ...........................................................................................24
4.10 Approvals............................................................................................25
Page ii
4.11 Litigation...........................................................................................25
4.12 Schedule of Documents................................................................................26
4.13 No Defaults..........................................................................................26
4.14 Lack of Felonies.....................................................................................27
4.15 No Judgments.........................................................................................27
4.16 Insurance............................................................................................27
4.17 No Brokers...........................................................................................27
4.18 Loans and Liens......................................................................................27
4.19 Solvency.............................................................................................28
4.20 Registration Rights..................................................................................28
4.21 Compliance with Securities Laws......................................................................28
4.22 Transfer Restrictions................................................................................28
4.23 Related Party Transactions...........................................................................29
4.24 Miscellaneous........................................................................................29
4.25 Additional Representations...........................................................................29
4.26 Use of Proceeds......................................................................................30
4.27 Medical Regulations..................................................................................30
4.28 Complete Disclosure..................................................................................31
ARTICLE V. Representations and Warranties of Pioneer Ventures................................................31
5.1 Organization............................................................................................31
5.2 No Breach...............................................................................................31
5.3 Authority for and Binding Nature of Agreement...........................................................32
5.4 Brokers.................................................................................................32
5.5 Investment..............................................................................................32
ARTICLE VI. Affirmative Covenants............................................................................32
6.1 Financial. ...........................................................................................32
6.2 Access..................................................................................................33
6.3 Books of Record and Account.............................................................................33
6.4 Membership on Board.....................................................................................34
6.5 Stock Option Plan.......................................................................................35
6.6 Rule 144 Compliance.....................................................................................35
6.7 Undertaking to File 34 Act Filings......................................................................35
6.8 No Breach...............................................................................................36
ARTICLE VII. Conditions Precedent to the Obligations of......................................................36
Pioneer Ventures to Close........................................................................................36
7.1 Representations and Warranties..........................................................................36
7.2 Covenants...............................................................................................37
7.3 No Actions..............................................................................................37
7.4 Consents, Licenses and Permits..........................................................................37
7.5 Certificate. ...........................................................................................37
7.6 Legal Opinion...........................................................................................37
7.7 No Material Adverse Change..............................................................................38
7.8 Agreements with Principals..............................................................................38
7.9 Key Person Insurance....................................................................................38
Page iii
7.10 Settle with Skadden, Arps............................................................................38
7.11 Settle with Opton Handler Xxxxxx.....................................................................39
7.12 Settle with Xxxxxxx & Lipton, P.C. and Xxxxxxx & Tomero, P.C.........................................39
7.13 Patents ...........................................................................................40
7.14 Approval of Counsel..................................................................................40
7.15 Reduction of Salaries and Modification of Employment Agreements......................................40
7.16 Accounting Expenses..................................................................................40
7.17 Consents, Licenses and Permits.......................................................................40
7.18 Additional Documents.................................................................................41
ARTICLE VIII. Conditions Precedent to the Obligations of the Company to Close................................41
8.1 Representations and Warranties..........................................................................41
8.2 Covenants ...........................................................................................41
8.3 No Actions..............................................................................................41
8.4 Additional Documents....................................................................................42
8.5 Approval of Counsel.....................................................................................42
ARTICLE IX. Closing..........................................................................................42
9.1 Location. ...........................................................................................42
9.2 Items to be Delivered by the Company....................................................................42
ARTICLE X. Survival of Representations; Indemnification; Fees................................................43
10.1 Survival.............................................................................................43
10.2 Indemnification......................................................................................44
10.3 Defense of Claims....................................................................................44
10.4 Rights without Prejudice.............................................................................45
ARTICLE XI. Fees................................................................................................45
11.1 Investment Banking Fees..............................................................................45
11.2 Expenses.............................................................................................45
11.3 Legal Fees...........................................................................................45
11.4 Accounting Fees......................................................................................45
11.5 Break-Up Fee.........................................................................................46
ARTICLE XII. Termination and Waiver..........................................................................46
12.1 Termination..........................................................................................46
12.2 Waiver. ...........................................................................................47
ARTICLE XIII. Miscellaneous Provisions.......................................................................47
13.1 Expenses.............................................................................................47
13.2 Modification, Termination or Waiver..................................................................47
13.3 Notices. ...........................................................................................47
Opton, Handler, Xxxxxx & Landau..................................................................................48
13.4 Binding Effect and Assignment........................................................................48
13.5 Entire Agreement.....................................................................................48
13.6 Exhibits.............................................................................................48
13.7 Governing Law........................................................................................49
13.8 Consent to Jurisdiction..............................................................................49
13.9 Counterparts.........................................................................................49
13.10 Section Headings.....................................................................................49
Page iv
13.11 Gender ...........................................................................................49
LIST OF EXHIBITS
EXHIBIT TITLE SECTION
------- ----- -------
Exhibit 1.1 Series C Senior Convertible Preferred Stock........................................1.1
Exhibit 4.7-A The Financial Statements...........................................................4.7
Exhibit 4.7-B The Financial Statements...........................................................4.7
Exhibit 4.8 Patents, Trademarks, Etc...........................................................4.8
Exhibit 4.12 Schedule of Documents ..........................................................4.12
Exhibit 4.18 Loans and Liens...................................................................4.18
Exhibit 4.23 Related Party Transactions........................................................4.23
PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP
INVESTMENT AGREEMENT
by and between
PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP
and
NEUROCORP, LTD.
July 30, 1998
